I'm sure you've been out with coworkers at happy hour when Bob from accounting has a few too many and decides to tell you all about the money he saved by refinancing his mortgage. He tells you that rates have never been lower and that "now is the time to refi." Despite being a bit annoyed with Bob's over sharing you can't help but wonder if mortgage refinancing is right for you.
Of course the process is too complex? There's no way you could quickly make a good decision about refinancing your home loan... right?
Never fear, I'm going to set the record straight on how easy mortgage refinancing can be. In fact, I'm going to show you what you need to do to refinance your mortgage in 6 easy steps.
Despite interest rates being lower than ever, half of homeowners haven't even considered refinancing. Why? Is it because it's such a hard process that they don't even want to try? Maybe. In the past mortgage refinancing has been a failry complex process. Too many back and forth phone calls, stacks of paperwork and weeks of time wasted. These common headaches have scared a lot of people away from even looking into mortgage refinancing despite the potential to save a lot of money.
At Lenda we're doing everything possible to turn mortgage refinancing into an easy and hassle free process. No hassles. No phone calls. No paper.
So here are the steps you need to take if you want to refinance your mortgage.
Mortgage Refinancing In 6 Easy Steps
Take these steps and you should be able to make a smart decision about refinancing your mortgage. If you need any help you can always contact us. That's what we're here for!
Step 1 - Decide why you want to refinance in the first place.
There's no reason to make a hasty decision because of what your coworker said about interest rates. Everyone's financial situation is different and what worked for your coworker might not work for you. You need to focus on your own circumstances and make the best decision possible.
First you want to decide why you want to refinance your home loan. The main reason people refinance is to lower their monthly mortgage payment. Lowering your monthly payment could save you a lot of money but you could also save a lot of money on interest. If you're lowering your interest rate significantly that could mean paying out a lot less in interest over the term of your loan. Don't overlook the potential interest savings.
Other common reasons to refinance include getting cash out for home improvements or to consolidate high interest credit card debt. Some homeowners are refinancing to go from an adjustable rate mortgage to a low fixed rate mortgage.
These are good reasons to consider mortgage refinancing. Decide what your number one goal is so you can focus on achieving it.
Step 2 - Know approximately how long you're going to stay in your home.
This can be a big determining factor in whether it makes sense to refinance or not. If you're planning on staying in your home for a long period of time then you should investigate your refinancing options.
If you're thinking about moving in a couple of years then the cost of refinancing might outweigh the potential savings. Do a basic break-even analysis to decide if it makes sense.
Step 3 - Calculate your approximate loan-to-value ratio.
I know. I know. I know. Throwing around words like "ratio" make things seem more difficult than they actually are. But your loan-to-value ratio is easy to calculate.
First you'll want to find the approximate value of your home. You're not going to be able to get an exact number for this. Once you get your appraisal finished you'll get an accurate number. For now just use sites like Zillow and Trulia to get estimates. Compare your home to other homes that have recently sold in your neighborhood. These sites will give you a decent starting point.
To figure out your loan-to-value ratio take the amount left on your mortgage balance and divide that by your estimated home value. This is your loan-to-value ratio. In most cases you want to shoot for 80% or less. Having a loan-to-value ratio of 80% or less will help you get the best refinancing deals and allow you to avoid things like private mortgage insurance (PMI).
Step 4 - Do some simple math.
Some simple math could save you from making a costly mistake. Let's assume that you're refinancing a $200,000 loan and the total closing costs are $3,700 (National Average 2012). If your payment decreases by $175 per month it would take approximately 21 months to recoup the costs (3,700/175=21). This is why step number 2 is so important. If you were going to move in the next 2 years refinancing could end up costing you more money than it saves you.
The other factor to consider is how much interest you'll save from getting a lower rate. You'll need to use a mortgage calculator for this but it's worth running the numbers. Usually you'll want to refinance for a term that is the same or less than the term of your current mortgage. For example, if you've already lived in a home for 10 years out of a 3o year mortgage then you would consider 20 year or 15 year loans when you refinance. If you were to refinance into another 3o year mortgage you could actually end up costing yourself more money in interest over the term of the loan.
Do the math. It's worth it.
Step 5 - Gather all your financial documents now.
The most time consuming part of the mortgage refinancing process is all the document gathering. Staying organized with all your financial documents can be tough. Thankfully technology is making it easier to stay organized.
If you have your financial documents scanned onto your hard drive then you'll love our drag and drop document service. We show you exactly every document required to get your loan and you can drag them into our secure system straight from your desktop.
Physical or electronic, get your documents organized now and you'll save yourself a lot of time. Download our free guide to get access to a document checklist you can use to help you get organized.
Step 6 - Find the best product and rate for your situation.
At this point you've finished the pre-work of setting a goal, doing some simple math and organizing your documents. Now you're ready to move into the final steps of the process.
You've probably seen advertisements showing you extremely low mortgage interest rates. Don't get fooled. These super low rates are used by banks to lure you in. Just because you see a rate posted in an ad it doesn't mean that's the rate you're going to get. In fact, most of the time you will not get that rate.
Everyone's situation is different. You might not have a perfect credit score and you might not want to refinance into a 15 year loan. You're best approach is to use a personalized quote tool like gorefi to get rate and loan information specifically tailored to you. That way you'll be getting information in real time that you know applies to you.
Don't fall victim to the teaser rate games that other mortgage companies play. Use gorefi's free quote tool to get personalized loan and rate recommendations. The best part of using gorefi is that you can complete the refinancing process online without annoying phone calls and stacks of paperwork. You could save yourself weeks of time. That's time you can use to take a nice vacation with all the money you'll be saving from refinancing your mortgage.
What happens next?
The good news is that most of the hard work is finished. Good job! There will be a few details to take care like scheduling an appraisal and underwriting. But don't sweat these steps too much. We ensure that your appraisal gets set for a time convenient for you and underwriting is taken care of on the backend. Follow these six steps and you'll be enjoying lower mortgage payments in no time.
If you want to see how much you could be saving use our personalized loan refinance quote calculator today.